Pharmacies are concentrated in the hands of big business: how the government plans to regulate
30 January 14:59
The Ukrainian pharmaceutical market has undergone significant changes in recent years. Concentration of pharmacies in the hands of big business has led to monopolization of the segment and uneven access to medicines for the population. Therefore, the government plans to introduce regulation of the distance between pharmacies to improve the situation and create equal conditions for all market participants. Ivan Zadvornykh, Director of the European Pharmaceutical Association, which is the initiator and developer of the draft changes, spoke about this in an interview with ThePharmaMedia.
How the pharmacy market has changed
Back in 2013, the pharmacy sector in Ukraine was represented mainly by small private companies and individual entrepreneurs (IEs). They accounted for approximately 80% of market participants and competed with each other within localities. However, in 2016-2018, the situation began to change, and large chains began to gradually take over small pharmacies.
According to the State Service of Ukraine on Medicines and Drugs Control, since 2021, the number of licensees of retail trade in medicines has decreased by 800 (13%), while the number of places of business has increased by 1634 (7%).
Such data indicate that the consolidation of pharmacy retail has occurred due to the acquisition of competitors’ pharmacies, which are mainly small and medium-sized businesses.
Who controls the pharmacy market
As of today, the top 5 pharmacy chains control 62% of the total market, and the top 10 – 72%.
For comparison, in 2017-2019, the same market share (72%) was controlled by the top 100 pharmacies.
That is, small and medium-sized businesses cannot withstand such a competitive burden and, as a result, close their businesses or sell them to large chains.
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Why small and medium-sized pharmacy businesses cannot withstand competition
Aggressive expansion of large chains
- Large chains are actively entering regional markets, trying to take over already established outlets.
- They open pharmacies in places with a large flow of people (near shopping centers, transportation hubs).
Unfair competition
- The door-to-door method is used, i.e. opening pharmacies next to already operating small pharmacies.
- Temporary price reduction (dumping) is used to drive competitors out of the market.
Financial inequality
- Large chains have additional sources of income (marketing services), which allows them to keep prices lower.
- Small and medium-sized businesses are forced to survive solely on trade margins.
- Individual entrepreneurs do not have access to marketing contracts or receive minimal benefits from them. Basically, they survive only on margins. And when a large chain pharmacy opens next to a sole proprietorship, it cannot withstand such competition and is forced to leave the market or sell its business.
Licensing conditions for pharmacies may be supplemented by a provision that sets a minimum distance between them. The relevant draft resolution is already for public discussion.
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The government wants to regulate the distance between pharmacies
It is planned to establish a minimum distance between pharmacies (300 meters in cities with more than 1 million inhabitants, 500 meters in smaller cities).
Exceptions: frontline areas, pharmacies in hospitals, social institutions, pharmacies licensed to sell narcotic drugs.
Marketing contracts are expected to be settled and a register of pharmacists is expected to be formed.
How will the mechanism of compliance with the proposed rules work in practice
When a business entity plans to open a pharmacy, it will submit information about the material and technical base to the State Service of Ukraine on Medicines and Drugs Control, as is currently required.
Additionally, an expert’s conclusion that there is no other pharmacy of any chain within 300 or 500 meters of its future place of business is required.
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Compromises are possible, but regulation is inevitable
The draft law is currently under public discussion. Prior to its publication, the State Service on Medicines and Drugs Control held consultations with representatives of the pharmacy business to take into account their concerns and comments.
Among the main critical opinions:
- The need for a global reform of the pharmaceutical market rather than targeted changes.
- Fears that the new regulations may limit access to pharmacies and medicines.
However, the regulator emphasizes that:
- The new requirements do not apply to existing pharmacies.
- There is no shortage of pharmacies: it is estimated that one pharmacy serves approximately 1,100 people.
- The new rules will contribute to an even distribution of pharmacies in the country and encourage the opening of new outlets in areas where there is a shortage.
It is expected that after the public discussion is completed, the State Administration on Medicines and Drugs Control will publish a final report taking into account the positions of market participants. Then it will become clear what changes will be implemented and when they will come into force.
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